The UK: Making FRANDs
Why is the UK one of the only venues in the world willing to resolve global licensing disputes between holders of SEPs and implementers?

Recent cases in the English courts have positioned the UK as one of the only venues in the world (certainly in Europe) willing to resolve global licensing disputes between holders of standard-essential patents (“SEPs”) and implementers, owing to the English courts’ innovative and commercial approach towards UK SEP infringement remedies through the so-called “FRAND injunction” and their willingness to determine global FRAND licences where appropriate.  However, it should be remembered that in first determining whether a SEP is in fact essential, the English courts will also carry out a detailed review of an SEP’s validity.

The concept of FRAND derives from technical standards for new standards-based technologies, products or services. Manufacturers collaborate via standards setting organisations (“SSOs”) to agree standards which are adopted across the industry, ensuring that equipment is interoperable, regardless of the manufacturer. One such SSO, the European Telecommunications Standards Institute (“ETSI”), produces globally applicable standards for telecommunications.

Such standards will often incorporate patented inventions. To balance the rights of SEP-holders to achieve a return for their inventive effort with the desire that the standard be implemented as widely as possible, SSOs require SEP-holders to undertake to licence their technology on fair, reasonable, and non-discriminatory (“FRAND”) terms.

Standards set by SSOs are global, as are the companies implementing them and the markets in which they operate. However, patents covering technology incorporated into standards are national rights. The rub comes where parties cannot agree on what is FRAND for a given licence, since SSOs do not have mechanisms to resolve disputes between SEP-holders and implementers: parties must therefore turn to national courts.

In the early years of telecoms litigation, while the European courts were content to deal with issues of infringement/essentiality and validity of SEPs (resulting in the now familiar forum shopping strategies that result from their differing procedures and attitudes to issues), they were wary of involving themselves in the central issue of what FRAND means, regarding this more as an issue of commerce than law.  However, over the past couple of years, the UK Patents Court has shown that it is willing and able to assist in helping resolve disputes relating to this issue when it has jurisdiction to do so.

In particular, the recent UK Court of Appeal decisions in the Unwired Planet v Huawei and ZTE¹ and in the Conversant v Huawei²  litigation have confirmed that the UK can, and will, determine global FRAND licences in appropriate circumstances.

In the Unwired Planet litigation, Unwired Planet had asserted six of its European patents against various mobile phone and infrastructure manufacturers in the UK, five of which were declared as being SEPs. Two of the SEPs were held by the Court to be valid, essential to the 2G, 3G, and 4G standards, and therefore infringed by Huawei.  The Court was therefore asked to decide what the consequences of this should be in circumstances where Huawei was using the SEPs, but no licence had been agreed.

A number of principles have emerged from the Unwired Planet judgments, including:

  • The UK Patents Court can determine the terms of a global FRAND licence, and an SEP-holder’s FRAND undertaking is directly enforceable in the UK by those who implement the standards in the UK.
  • There is a conceptual distinction between the scope of proceedings for patent infringement and the scope and effect of the ETSI undertaking. The English Patents Court is able to determine the terms of a FRAND licence an SEP-holder is required to offer pursuant to its undertaking to ETSI without making any findings of validity or essentiality in respect of any foreign patents.
  • FRAND licences determined by the UK Court should not prevent a licensee from challenging the validity or essentiality of any foreign SEPs covered by the licence. Any FRAND license determined by the English Court can be drafted to provide for the possibility of some of the SEP-holder’s non-UK patents being found invalid or non-essential by another national court.
  • Given the international scope of the ETSI standard and the FRAND undertaking, it might be that only a global licence is FRAND (as opposed to one limited to a territory), but this will depend on the facts of the case.
  • A FRAND rate can be determined using a variety of methodologies and there can be more than one set of FRAND terms. FRAND offers may be structured in different ways, e.g., to include different parties, cross-licences, rights, scope, and payment terms.
  • Where there is more than one set of FRAND terms, the SEP-holder can choose which set of FRAND terms to offer the licensee and in doing so will discharge its ETSI undertaking.
  • The requirements, and hence, the boundaries of FRAND and competition law are not the same. A royalty rate may be above the range determined to be FRAND rate but that does not mean it will necessarily be contrary to competition law (and hence to have asked for it). Moreover a SEP-holder can offer different royalty rates to different implementers, provided all offers are FRAND. The ETSI undertaking does not include a “most favoured nation” clause as part of a SEP’s obligation (and, in fact such an approach had been rejected by ETSI).
  • The CJEU’s Huawei v ZTE guidelines do not lay down mandatory conditions or a new set of procedural rules such that acts of non-compliance would necessarily constitute breaches of Article 102 TFEU. Instead, the CJEU’s guidelines set out a safe harbour within which conduct is unlikely to be anti-competitive. The guidelines do not impose a positive obligation upon a SEP-holder to notify the alleged infringer before commencing proceedings and the court will take a practical view of the SEP-holder’s behaviour, rather than a formulaic, procedural approach.
  • Once the FRAND terms have been determined, an injunction will ordinarily be granted against an implementer, conditional on them continuing to refuse to enter a FRAND licence (a so-called “FRAND injunction”). Conversely, an injunction will be refused if the SEP holder refuses to be willing to enter into a FRAND licence.

The Conversant litigation has reaffirmed the English Patents Court’s willingness to hear global FRAND disputes where there is a nexus to SEP infringement in the UK. In this litigation, Conversant had asserted various European patents against  Huawei and ZTE, claiming they are essential and infringed, and seeking a declaration that they had made a licence offer on FRAND terms or alternatively, a determination of the FRAND terms.

The Defendants challenged jurisdiction on two grounds: (1) the English Court does not have jurisdiction to determine validity and infringement of Chinese patents, and (2) forum non conveniens, on the basis that the Chinese Court is the natural and appropriate forum to hear the dispute because the majority of the Defendants’ business was in China. At first instance, Carr J rejected the jurisdictional challenge, on the basis that the case was a claim relating to infringement of a UK patent, and not, as argued by the Defendants, a request for the English Court to determine matters relating to validity and infringement of non-UK designated patents. Carr J also rejected the forum non conveniens argument on the basis that the Chinese Court had no jurisdiction to determine issues relating to validity and infringement of UK patents, and nor did it have jurisdiction to determine the FRAND issues without the consent of both parties, which it did not have. Floyd LJ, giving judgment for the Court of Appeal affirmed the first instance decision and refused an invitation to refer the matter to the CJEU.

Note, however, the English courts will not intervene in global FRAND disputes where infringement of a UK-designated SEP is not in issue. In Apple v Qualcomm³, the implementer Apple brought a claim against a sample of Qualcomm’s patents, and seeking declarations of invalidity and non-essentiality in relation to the patents, and alleging that Qualcomm’s behaviour was anti-competitive and in breach of its FRAND promise. However, the declarations sought were in relation to non-UK patents, and an undertaking given by the US parent entity, Qualcomm, Inc.

To anchor the claim in the UK, Apple included Qualcomm UK as a co-defendant. In declining jurisdiction, Morgan J stated that Qualcomm, Inc’s ETSI undertaking did not bind Qualcomm UK in respect of Qualcomm, Inc’s patents, and that Qualcomm UK was under no obligation to procure a FRAND licence from Qualcomm, Inc in respect of its patents. Whilst the specific UK patent claims could continue, as the FRAND issues related to overseas patents which were not in issue before the Patents Court, it had no jurisdiction to hear these.

This is consistent with the judgments in Unwired Planet and Conversant, where FRAND issues only became live once there had been a finding of infringement in the UK of a UK SEP.

Thus in these SEP cases, the English Court has positioned itself as a key jurisdiction for arbitrating global FRAND terms, provided the SEPs in question include a  valid and infringed UK patent.  However, it should be noted that both the Unwired and the Conversant decisions are to be considered by the UK’s Supreme Court later this year (with Apple being permitted to intervene), and hence the strategic importance of the UK as a choice of forum in resolving FRAND disputes now rests with the jurisdiction’s highest court – watch this space!

¹ Unwired Planet International Limited and Another v Huawei Technologies Co. Limited and Another [2018] EWCA Civ 2344

² Huawei v Conversant [2019] EWCA Civ 38 (30 January 2019)

³ [2018] EWHC 1188 (Pat)

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